SEC Charges 4 for Manipulating Marijuana Company Stocks

SEC had halted trading in mid-May in two of the companies

The firms GrowLife and Hemp Inc. were promoted in a pump-and-dump scam, the SEC says. The firms GrowLife and Hemp Inc. were promoted in a pump-and-dump scam, the SEC says.

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The Securities and Exchange Commission Tuesday charged four promoters with ties to the Pacific Northwest for manipulating the securities of several microcap companies, including marijuana-related stocks of GrowLife Inc. and Hemp Inc.

The SEC alleges that the four promoters bought inexpensive shares of thinly traded penny stock companies on the open market and conducted prearranged, manipulative matched orders and wash trades to create the illusion of an active market in these stocks.

They then sold their shares in coordination with aggressive promotional campaigns that urged investors to buy the stocks because the prices were on the verge of rising substantially, the SEC said in a Tuesday statement. “However, these companies had little to no business operations at the time. The promoters reaped more than $2.5 million in illegal profits through their schemes.”

Two of the companies manipulated in this case — GrowLife Inc. and Hemp Inc. — claim to be related to the medical marijuana industry.

In mid-May, the SEC suspended trading in GrowLife and Hemp Inc., and warned investors in an alert about the potential for fraud in microcap companies that claim their operations relate to the marijuana industry.

Other schemes by the four promoters involved an oil-and-gas company — Riverdale Oil and Gas Corp. — and three other microcap stocks, ISM International, Allied Products Corp. and Aden Solutions.

The SEC’s “Microcap Fraud Task Force is taking direct aim at abusive practices and serial violators within the microcap markets like these four promoters seeking to exploit retail investors for personal gain,” said Michael Paley, co-chairman of the task force, in a statement. “In this case, we meticulously reviewed trading records and developed the evidence necessary to connect these four promoters and their coordinated trading efforts.”

The SEC’s complaint filed in federal court in Tacoma, Washington, charges the following individuals:

  • Mikhail Galas, a stock promoter who lives in Vancouver, Washington.
  • Alexander Hawatmeh, a member of Worthmore Investments LLC, which owns a stock promotion website called He formerly lived in Vancouver and currently resides in Lincoln City, Oregon.
  • Christopher Mrowca, a stock promoter who operates Money Runners Group LLC, which has an affiliated stock promotion website called He lives in Bradenton, Fla.
  • Tovy Pustovit, who owns a stock promotion website called Explosive Alerts. He also lives in Vancouver.

In a parallel action, the U.S. Attorney’s Office for the Western District of Washington announced criminal charges against Galas, Hawatmeh and Mrowca.

According to the SEC’s complaint, GrowLife was part of a broader online promotion of several marijuana-related stocks in early 2014.

“Mrowca specifically promoted GrowLife through his Money Runners Group website and predicted that the stock price would nearly double," the SEC says. "Mrowca, Galas and Hawatmeh meanwhile engaged in manipulative trading designed to increase the price and volume of GrowLife stock, and they later sold their shares for illicit profits.”

Similarly, the SEC alleges that Hawatmeh, Galas and Mrowca bought and sold approximately 41.7 million shares of Hemp Inc. in January and February 2014 while the stock was actively promoted on the Internet. For example, one Internet boast on Feb. 6 claimed that Hemp could reach “a REAL Possible Gain of OVER 2900%.” During the promotion, Hawatmeh, Mrowca and Galas engaged in manipulative wash trades and matched orders to manipulate Hemp’s common stock before selling their shares for illegal gains, the SEC says.

The SEC’s complaint charges Galas, Hawatmeh, Mrowca and Pustovit with violating antifraud provisions of the federal securities laws. The SEC seeks temporary, preliminary and permanent injunctions along with an emergency asset freeze, disgorgement, prejudgment interest, financial penalties and orders barring the promoters from participating in a penny stock offering.

The SEC’s complaint names Nadia Hawatmeh as a relief defendant for the purposes of recovering ill-gotten gains in her brokerage account, which was used by the promoters to conduct some of their manipulative trades.


Check out Don’t Get Smoked by Marijuana-Related Investments, SEC Warns on ThinkAdvisor.

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